In common with other professional bodies and just about everyone else, the Law Society was taken completely by surprise last week when the government announced far-reaching proposals that could result in the abolition of self-regulation in financial services.

Deepening the sense of shock was a recognition that the move could be the thin end of the wedge for self-regulation across the board.Along with accountants and insurance brokers, solicitors may be swept up in the reform of the decade-old system of financial regulation.

The change would involve a massive centralisation of supervisory powers under a new body, already dubbed the 'Super-SIB', headed by the deputy governor of the Bank of England, Howard Davies.

The new body would embrace the three self-regulatory organisations (SROs) and others currently under the Securities and Investments Board (SIB).Responsibility for the speed with which the new government has introduced the reform is attributed to the Chief Secretary to the Treasury Alistair Darling.

Changes will begin with the stripping of the Bank of England's regulatory powers in the forthcoming Banking Bill and culminate in a new Financial Services Act in 1998 or 1999.Despite assurances to the contrary given before the general election, the changes are likely to involve the nine recognised professional bodies (RPBs), of which the Law Society is one.

Since the Financial Services Act 1986 (FSA) came into force, solicitor investment managers have had to seek authorisation from the Society to offer advice on financial services.At present, under the supervision of the Law Society, solicitors wishing to offer such services have to abide by strict guidelines and -- for the past two years -- have faced a mandatory accreditation process that is widely perceived to be extremely tough.

Even before the FSA, solicitors had to observe stringent accounts rules and investor clients have always benefited from the safety net provided by the Solicitors Indemnity Fund.The scope of the new regulatory regime is as yet indistinct.

A Treasury spokeswoman said: 'The broad framework that we see is that any firm doing a significant amount of investment business will have to be authorised by the Super-SIB.' She described this as the principle behind the 'broad template of the new regulatory regime' that was being drafted into a Bill to be published in the first half of 1998.

This would seem to indicate that self-regulation by the RFBs will at least be affected by the changes.

But the Treasury stressed there were many details still to be ironed out and that there would be consultation.

'No decision has yet been taken over whether the RPBs could have a limited role to play, for instance in relation to supervision under contract from the Super-SIB, 'the spokeswoman said.Before the election, Mike O'Brien MP, who was then Labour's financial services spokesman and is now a Home Office minister, made it clear that there were no plans to abolish RPBs or change their authority.

He even wrote to Solicitors for Independent Financial Advice (SIFA) to confirm this assurance.However, in a post-election House of Commons statement, the Chancellor specifically mentioned RPBs when condemning a divided regulatory system that was 'inefficient, confusing for investors and lacks accountability and a clear allocation of responsibilities.'Reaction from solicitors to the thrust of the proposed changes has been mixed.

City advisers appreciate the advantages of pulling together the various strands of regulation under one body.

Solicitor investment managers and advisors vigorouslydefend self-regulation on the grounds that it offers clients unparalleled protection and that 'if it ain't broke, don't fix it'.George Staple, a former head of the Serious Fraud Office and now a partner handling contentious business at Clifford Chance, welcomed the incorporation of the Bank of England's banking supervisory function and the SROs into an enlarged SIB.

He pointed to increasing costs incurred by 'the diversity of regulators in the City.'As for the Law Society, it is keen to avoid pre-empting the negotiations to come and is treading cautiously until the proposals are fleshed out by the government.

Bob Butler, head of the Law Society's monitoring and investigations unit, said: 'We want to present what we consider to be a strong case.

We already successfully regulate solicitors in all their activities and we would want to retain that.' Bryan Wordsworth chair of the Society's working party on financial and investment services, said his group was 'keen to negotiate with the government on any proposed changes.' Solicitors had an 'excellent record' in financial services under self-regulation, he said: 'The Society has a very wide experience of how solicitors work and it is a very efficient regulator.' Mr Wordsworth added: 'We run a very tight ship.

Our professional rules ensure we are more tightly regulated than others and we have a better compensation scheme that provides excellent protection for clients.

We stand on our record'.Richard Larner, investment director at Ipswich solicitors Birketts and a director of the Association of Solicitor Investment Managers (ASIM) -- whose members control some £1.5 billion of funds -- was strongly supportive of regulation under the Society.

The system had a 'strong track record and a lack of scandal', he said.

He continued: 'The particularly attractive feat ure of the current system is that the compensation arrangements are so strong.

If supervision of investment work is split off from legal work, with two sets of client accounting rules, the client will be not be served so well.'Richard Glossop, director of SIFA, said a lot more detail was needed before a clear view could be formed.

However, he said: 'The current way of operating is right and proper.'